Salary Sacrifice vs Salary Packaging – is there a difference?

Salary Sacrificing vs Salary Packaging – is there a difference?

Key takeaways

In Australia, salary sacrifice and salary packaging usually refer to the same type of arrangement

Both allow eligible expenses to be paid with your pre-tax income, which can help reduces your taxable income

Salary sacrifice typically describes the action of redirecting part of your salary

Salary packaging usually refers to the structured arrangement that can include multiple benefits

You’ve likely come across the terms ‘salary sacrifice’ and ‘salary packaging’ and that can make it confusing to work out whether they’re actually the same thing, or if one offers greater benefits than the other.

The short answer: Salary sacrifice and salary packaging are often used interchangeably – and while they’re closely related, understanding how the terms are used can make it easier to get the most from your pay.

To clarify how the terms are used, let’s break it down.

What is salary sacrifice?

Salary sacrifice is a contractual agreement in which an employee allocates part of their pre-tax salary to approved non-cash benefits. The key tax benefit is that these expenses are paid using pre-tax income, potentially lowering the amount of tax paid because those expenses are covered before PAYG tax is applied.

What is salary packaging?

Salary packaging refers to an arrangement where an employer offers a combination of benefits that can be used with your salary sacrificed income. This allows Australian employees to pay for eligible expenses with pre-tax dollars which could lead to meaningful tax savings.

What’s the difference between salary sacrifice and salary packaging?

At their core, salary sacrifice and salary packaging both involve an arrangement with your employer to forgoe part of your pre-tax salary to pay for approved benefits instead of receiving that money as cash salary.

What sets them apart is largely one of terminology, not outcomes:

Salary sacrifice typically describes the action of redirecting part of your future earnings toward a specific benefit. It’s most commonly mentioned when referring to additional superannuation contributions.
Salary packaging usually refers to the structured arrangement that allows multiple benefits to be bundled together – such as novated leases, work-related electronics or tools, or living expenses.

The distinction is more about how the arrangement is described than how it works in practise. The tax treatment and potential savings are the same, regardless of which term is used.

Look at it this way: salary sacrifice is pressing the button – and salary packaging is the system humming away in the background.

As one of Australia’s largest salary packaging providers, Maxxia has more than three decades of experience in the industry and was among the earliest adopters of the term ‘salary packaging’ in everyday use – moving away from ‘salary sacrifice’ in 2010.

How could salary packaging save you on tax?

Whether we’re calling it sacrifice or packaging, its value comes down to one simple concept: pre-tax vs post-tax salary.

Australia has a progressive tax system, meaning the more you earn, the higher your marginal tax rate. When you salary package, approved expenses are paid before tax is calculated, which could reduce your taxable income.

In other words, it’s about putting your money to work before the tax office takes its slice – not after.

Here’s why that matters:

Paying expenses from your take-home pay = after-tax dollars
Paying the same expenses through salary packaging = pre-tax income

By lowering your taxable income, salary packaging could help you pay less tax– while still spending money on expenses you’d be paying for anyway.

How does salary sacrifice impact your pay?

According to the Australian Taxation Office (ATO), salary sacrifice arrangements must be agreed to in advance and apply only to future earnings.

Additionally, what you can actually package – and how much you could save – depends on your role and employer.

Example:

If you earn $90,000 per year and salary sacrifice $10,000 toward approved benefits:

Your taxable salary may reduce to $80,000
Less income is taxed at higher marginal rates
The $10,000 goes further than if it came from your take-home pay
That could mean more of your money stays with you, whether it’s helping with everyday bills, your super, or something bigger like a car.

What benefits can you salary package?

This is where things get personal. Can you salary sacrifice your mortgage? Rent?

What you can package depends on where you work – but here are some of the most common options:

Novated leases
Additional superannuation contributions
Living expenses such as rent, mortgage, personal loans, or groceries (industry dependent)
Work-related items such as laptops or phones

Employees in healthcare and not-for-profit or charity organisations may be eligible for FBT-exempt caps, which can significantly increase the value of salary packaging. In healthcare, the cap is $9,010. For not-for-profit, it’s $15,900. Both can also package up to $2,650 in Meal Entertainment and Venue Hire.

Other sectors – including government, education, and corporate employers – may still offer tax effective benefits, though caps and eligibility can differ.

Salary sacrifice a car through a novated lease

A novated lease could let you salary sacrifice an eligible car such as an Electric Vehicle [SM17]using pre-tax income, helping to potentially reduce[SM18] your taxable income while spreading vehicle costs into one convenient payment.

Interested in a novated lease? Speak with Maxxia to find out how packaging a car through a novated lease could work for you.

Salary sacrifice into super

In addition to your employer’s superannuation payments, you can choose to put extra money into your super before tax, as long as your total contributions stay under the $30,000 cap. Many workplaces also let employee’s salary package their additional super, such as the following industries:

Things to be aware of before you start salary packaging

Salary packaging is ATO approved, but like any financial arrangement, there are a few rules worth knowing upfront.

A valid arrangement must:

Be agreed to in advance (between you and your employer)
Apply to future earnings only
Be clearly documented
Comply with minimum wage requirements

Salary packaging can also affect other aspects of your pay, such as overtime, bonuses, or eligibility for government benefits. That’s why it’s important to understand how an arrangement applies to your individual circumstances before getting started, and we always recommend seeking financial advice if you’re unsure.